File photoNEW DELHI: The effective GST rate on under- construction real estate projects will be 12 per cent only and not 18 per cent as there will be abatement for land cost, according to tax consultant EY.

Realtors' body CREDAI President Jaxay Shah also said that the effective GST rate would remain at 12 per cent and assured that as per the law, the developers would pass on the benefits of input tax credit to home buyers.

On Thursday, the government hiked the GST rate for the construction sector to 18 per cent from 12 per cent but removed land value from computation of tax liability.

The GST Council had in May decided to levy 12 per cent GST on construction of a complex, building, civil structure or intended for sale to a buyer, wholly or partly.

Earlier, the value of land was to be included in the amount on which tax was to be calculated.

"There is some confusion in the industry that GST on under-construction projects has been fixed by the government at 18 per cent instead of the 12 per cent proposed earlier by the GST Council.

"This confusion is mis-placed as there is an abatement of one-third for the value of land when you apply the rate of 18 per cent; which makes the effective GST rate 12 per cent only," said Abhishek Jain, Tax Partner, EY.

When contacted, CREDAI President Jaxay Shah also said that the effective GST rate will remain 12 per cent on under- construction properties.

Asked whether builders will pass on the input tax credit to home buyers, he said: "As per law, we will return input tax credit to buyers".

As on today, home buyers have to pay 15 per cent service tax on 30 per cent of the total cost of the apartment, which is effectively 4.5 per cent.

NAREDCO President Parveen Jain said the effective rate will be 12 per cent after the abatement for land value.

Earlier this month, NAREDCO had written to the Prime Minister seeking lower GST of 6 per cent on sale of under- construction property from 12 per cent as higher tax will lead to price rise and affect sales.

It had also sought exemption from Goods and Services Tax (GST), to be rolled out from July 1, to affordable housing which has gained momentum after getting infrastructure status and interest subsidy.